ARMSTRONG, Iowa, — Art's Way Manufacturing Co., Inc. (Nasdaq: ARTW), an international manufacturer and distributor of equipment serving agricultural, research and steel cutting needs, announced its financial results for the first quarter of fiscal 2019.
Sales: Consolidated corporate sales for continuing operations for the 3 month period ended Feb. 28, 2019 were $4,124,000 compared to $5,366,000 during the same period in fiscal 2018, a decrease of $1,242,000, or 23.1%. The decrease in revenue is due to decreased demand across the grinder, manure spreader and OEM blower product lines and the liquidation of the company’s Canadian subsidiary from its agricultural products segment. Some of the decreased demand is due to economic factors such as commodity prices and price increases that were implemented to customers due to increased material costs, mainly steel. Also, in 2018 Art’s Way sold off aged manure spreader inventory at decreased margins, which led to decreased sales of manure spreaders in 2019. It introduced new manure spreader models to the product line at the end of fiscal 2018 and has seen some early success with demand for this product in 2019.
OEM blower sales are down as the OEM blower customer elected not to purchase any blowers from the company in 2019 due to slow-moving inventory on its dealer lots related to poor agricultural market conditions. Sales in the modular buildings segment were up 38.3% due to additional lease income from leased modular buildings that were put into service in fiscal 2018. The company’s modular building backlog is strong and includes a $8.4 million project that is scheduled to be completed entirely in 2019. Art’s Way is continuing to quote an unprecedented amount of modular buildings for its business after the restructuring of its sales and management teams in 2018 and is excited for the potential of this segment in the years to come. Sales in the tools segment are down 29.4% from the first quarter of fiscal 2018 due to the loss of a large volume customer at the end of the first quarter of fiscal 2018.
Consolidated gross margin for the 3 month period ended Feb. 28, 2019 was 14.7% compared to 20.9% for the same period in fiscal 2018. The decreased gross margin is attributable to less revenue available to cover fixed overhead from its agricultural products and tools segments. The modular buildings segment is contributing to decreased gross margin through increased direct labor to handle large upcoming projects and an increase in depreciation on leased modular buildings.
Income (Loss) from Continuing Operations: Consolidated net (loss) from continuing operations before income taxes was $(781,000) for the 3 month period ended Feb. 28, 2019 compared to net (loss) from continuing operations before income taxes of $(306,000) for the same period in fiscal 2018. The increased net (loss) from continuing operations is primarily due to less revenue available to covered fixed costs in the agricultural products and tools segments. Art’s Way has taken steps to reduce expenses as a result of the soft market conditions for its agricultural products segment, while continuing to invest in product development and improvements to support its customers for the long term.
Operations: (Loss) per basic and diluted share from continuing operations for the first quarter of fiscal 2019 was $(0.14), compared to (loss) per basic and diluted share from continuing operations of $(0.13) for the same period in fiscal 2018.
Chairman of the Art's Way Board of Directors, Marc H. McConnell reports, “Results for our fiscal first quarter reflected the ongoing headwinds facing the agricultural equipment industry due to a variety of significant factors discussed over many preceding quarters. Low commodity prices, trade concerns, severe uncertainty, elevated steel prices, and other factors have created an environment not conducive to robust equipment sales activity for our company and peers alike. We have continued to position the company to withstand these conditions going forward by continuing to reduce inventory, reduce borrowings, simplify operations, support lean initiatives, and develop compelling new product offerings. We will continue to focus on these fundamentals and feel that we are improving our business as a result of our efforts, even if present day circumstances don't yet allow that to translate to the bottom line.
“We are enthused to have significant backlog in front of us at our Art's Way Scientific business that will impact future quarters, as well as other positive opportunities we are pursuing in our tools business that may also impact our performance during the fiscal year. On all fronts we remain committed to improving our operations every day and continuing to position ourselves for the long-term, sustainable profitability that has proven elusive during these difficult few years.”